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Aviation History
1962
1962 - 0889.PDF
FLIGHT International, 7 June 1962 887 4S to New York and Europe. Vang advertises its "Seven-League Cargo Service" to Brasilia, Belem, Manaos, Rio de Janeiro and Sao Paulo in Brazil, Bogota, Caracas, Ciudad Trujillo, Mexico City, Montevideo and Port-of-Spain. In spite of accidents and losses to its fleet of Comet 4s, Aerolineas perked up its busy domestic operations during 1960-61 by replacing its ancient Convair 440s and 880s with new Avro 748s, and intends—as its recent advertisements to sell all its piston equipment indicate—to become an all-turbine operator of Comets, Caravelles and 748s. About 40 private and public Latin American airlines now fly throughout the Americas, into the USA and overseas. In some republics, even the air force has a commercial airline operation. SATCO, the commercial air transport branch of the Peruvian Air Force, and LADE (Lineas Aereas del Estado), the airline of the Argentine Air Force, penetrate international routes in Bolivia, Chile and Brazil carrying civilians and commercial air cargo. Of all the 20 Latin American republics, Mexico has developed the most sophisticated international airline operations, mainly because of long and persistent bargaining with the CAB for US landing rights. On July 1 the long-planned merger of her three international carriers, all of which have lost money since the first of the year, is due to take place. These are Compania Mexicana de Aviacion, Aeronaves de Mexico and Guest Aerovias. They will have an initial capital of 125m Mexican pesos ($USl0m), will continue to operate the three Mexicana Comet 4s, Aeronaves' DC-8s and Aeronaves' Britannias. The capitalization will be 50 per cent Mexican Government, 25 per cent from CM A, 15 per cent Aeronaves and 10 per cent Guest. For the latter airline, which had already trimmed its international services, the consor tium means re-opening of its Mexico City - Madrid - Miami route. Conspicuously absent is Cubana de Aviacion, one of the oldest airlines in Latin America, whose Viscounts were recently sold by the Castro regime and at least one of whose four Britannias, diverted to the Havana - Gander, Newfoundland - Prague run, now flies bearing the colours of CSA, the Czech state airline. EASTERN'S TARNISHED FALCON UNTIL the appearance of BOAC's annual report for 1961-62 it seems that Eastern's report for 1961 will have the dubious distinc tion of being the saddest financial literature available to the industry. Before making allowance for income tax, Eastern last year suffered a loss of $28m (£10m), compared with a $10m loss in 1960 and a SI3m profit in 1959. The figures for 1960 and 1961 included capital profits from aircraft sales of $2m in each year. A setback of this magnitude has required a massive reduction in Eastern's hard earned reserves: the income tax reserve has been reduced by ?13m, a ?5m reserve set up for future airframe main tenance has been withdrawn; and the balance for retained earnings has been reduced by the remaining $10m. Although the report does not say so in as many words, the corroding element primarily responsible for the tarnishing of Eastern's Golden Falcon is a tendency for unit costs to rise faster HRH Princess Alexandra made her first flight in a Handley Page Herald when she few by BEA to Stockholm for her recent five-day visit to Sweden in connection with the British Trade Fair. The Princess was presented with a bouquet of flowers by BEA traffic clerk Miss Barbara Kendall before departure for Stockholm Arlanda than average revenue rates. This trend, coupled with load factors which have settled down only just over the 50 per cent mark, has pushed Eastern into the position where some drastic remedial action is called for. In a blunt introduction to the 1961 report, the airline's deficits are attributed to "overcompetitive and underpriced conditions." As far as overcompetition is concerned, Eastern has probably suffered more than any other carrier from the CAB's predilection for multiple competition. As Eastern's competitors have often got in first with jets, the airline has been confronted with a loss of revenue simultaneously with the increase of costs which usually accompanies a warmer competitive climate. The reference to underpricing appears to be related to the gap between first and coach-class fares. According to Eastern, this gap is so wide that an unnecessarily large volume of first-class business has drifted away to take advantage of lower fares. Although this drift has obviously been exaggerated as a consequence of the business recession—which has encouraged many business houses to econom ize on such items as air travel—the effect has been no less damaging on the airlines. The main device used by Eastern to alleviate this problem was an improvement in service rather than a variation in fare. Thus, the first-class services were extensively reviewed to offer better schedules, particularly from the viewpoint of the out-in-the morning, back-in-the-afternoon commuter, while a wide range of convenient services (such as the Air Bus and the Air Shuttle) were introduced for the more fare-conscious sections of the public. Fundamentally, the only way to solve Eastern's problem is either to reduce the heat of competition or to increase the airline's com petitive position. By merging with American, Eastern hopes to realize both these possibilities, and at the same time cut costs to a more competitive level. This would be effected immediately by a widespread elimination of duplicated resources, and in the long term by the integration of Eastern's predominantly north-south network, with its pronounced winter peak, into the American Air lines' system which has an east-west summer bias. Perhaps the only significant weakness in the proposal lies in the possible dis economies of colossal scale in an enterprise which would embrace about one-third of the US domestic market. Footnote: Both Eastern and American are campaigning strongly at the current CAB public hearing into the proposed merger. Eastern's president, Mr M. A. Maclntyre, has said that the airline's operations are not generating funds sufficient to buy the additional jets it needs to be competitive and that to date it has no assurance that it has the funds to pay for the 40 Boeing 727s on order. To buy these aircraft, says Mr Maclntyre, Eastern needs up to $40m new capital in the next 15 months. The present bank loans of about $80m also need renegotiating. The airline has, he says, "borrowed the maxi mum amounts available to us under our loan agreements and equity financing at present levels is out of the question." The air line needs a 20 per cent revenue increase this year to wipe out last year's deficits and this would still leave a net profit "far less than enough to buy one jet."
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